July 05, 2013

Music to Our Ears: Samsung Misses their Galaxy Phone Forecast

In April of this year we loudly questioned Samsung's wild claims about the success of their new Galaxy S4 and were the only news site to do so. Our report titled "Is Samsung's Galaxy S4 Really Selling Off-the-Chart or are they Just Playing a Marketing Game?" – Reflected our deep skepticism. Today, the truth finally emerged with Samsung missing an already modest forecast, deepening worries that its smartphone business may have peaked.

It's not much of a secret that Patently Apple isn't a big fan of Samsung and a quick search on our site will prove that out. We've been pounding the table about Samsung's silly volume strategy that both Wall Street and the mainstream press had been applauding so loudly up until a few weeks ago when the tide began to turn. As early as February we reported that Apple had grabbed 70% of the Global smartphone profits for Q4 2012 despite the mainstream press touting that Samsung was the true market leader – based on volume. So yes, it's music to our ears to hear that the "Volume Leader" is falling short on sales and profits.

More Music

According to Reuters, "The disappointing earnings estimate by Samsung, which has had a track record of beating even the most bullish forecasts, sent its shares down more than 3 percent on Friday. They have dropped 17 percent since early June, hit by a series of brokerage downgrades. The share price reflects concerns about Samsung's handset margins…"

The Reuters report added that "The guidance, released ahead of full quarterly results due on July 26,was worse than an average forecastof 10.16 trillion won in a poll of 43 analysts by Thomson Reuters I/B/E/S."

The BBC reported that "The slowdown in its handset business appears to be worse than expected and the disappointing result simply reinforces the market view that Samsung's smartphone growth momentum is slowing," said Lee Sei-chul, an analyst at Seoul-based Meritz Securities.

The Wall Street Journal Reported that "More downward revisions are likely from brokerages," with the operating profit now estimated to fall below market consensus of 10 trillion won, said Jae H. Lee, an analyst with Daiwa Securities. "Higher marketing costs likely pressured the operating profit," a burden which will likely increase in the second half as the company tries to keep sales volumes up, he added." Yes, the old sales volume mirage.

Bloomberg Businessweek quoted Byun Han Joon, a Seoul-based analyst at KB Investment & Securities Co as saying that Samsung "sharply missed the market expectation, and that worries me. The market was initially concerned about the third- and fourth-quarter results, but today's news raises questions if the earnings are already in bad shape."

Samsung's massive profits miss appears to prove out that the old sales-volume trick without profits can only work for so long and that we've been calling it right for months – well ahead of today's news. Samsung, the plastic leader, admitted to being a fast follower lately and today we see that this notion that they're a true smartphone innovator isn't panning out as they've planned. Technology leadership is more than just sales volume and Samsung is hearing that music loud and clear from Wall Street today.

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From what I've been reading, Samesung better keep the S4s shipping, since they're replacing a good many of them for hardware failures. An old friend of mine is on his 4th one since release day due to failures.

This is it.
This is what matters.
An increase in market share.
How it confuses market analysts.
When we can't imagine
What customers might like,
We assemble variety,
We iterate.

How many models can we build?
Will customers buy any of them?
Will they just sit on store shelves?
If Apple is busy inventing something,
Why innovate anything?

We don't believe in invention.
Or disruption.
There are a thousand variations
Of every model.
We spend most of our time
Copying a few great products.
Until every version we ship
Fills every store shelf.

We're engineers and industrialists.
Craftsmen and copycats.
We ship the most phones.

You may seldom use them,
But as long as we ship them,
It means we're winning.

No need in jumping for joy until we see Apple's earnings this month. It looks like a saturated smartphone market to me and I doubt Apple will get away unscathed. Wall Street is desperately looking to knock Apple's share price down further for any reason at all. Of all the tech companies that have hit the skids, Apple has to be the scapegoat of the smartphone industry.

Personally, I don't give a damn about Samsung. I want to see Apple turn on Google and drag it down. Google stock is worth more than twice as much as Apple's and Android is the reason. Without Android, Apple would probably be sitting pretty at the top of the food chain instead of being fodder.

Is this a sign of channel stuffing of Galaxy smartphones? If so, Samsung seriously misjudged the market as you would expect at least a few quarters before it became apparent. Normally that would give them time to come out with a new product to keep the ponzu scheme going. It should be interesting to see how this plays out over the next quarter. Samsung could be in for a very bad time.

One word....KARMA haha best part "Samsung's massive profits miss appears to prove out that the old sales-volume trick without profits can only work for so long and that we've been calling it right for months – well ahead of today's news. Samsung, the plastic leader, admitted to being a fast follower lately and today we see that this notion that they're a true smartphone innovator isn't panning out as they've planned. Technology leadership is more than just sales volume and Samsung is hearing that music loud and clear from Wall Street today." Lol Samsung the plastic leader! Hahahaha good one Jack